On 9 May 2017, Federal Treasurer Scott Morrison outlined the Government’s vision for spending and generating growth across the national economy. The big winner this year is the infrastructure sector with a boost in funding and the key message is that things are looking up. Previously, innovation was a key driver that the Government sought to leverage to achieve growth, particularly by fostering and supporting Australian R&D. This year, the focus seems to have shifted away from innovation. An announcement on the Government’s final recommendations for the R&D Tax Incentive review was expected but was not forthcoming.

Innovation & the R&D Tax Incentive

The OECD Research & Development Statistics indicate as a percentage of GDP, Australia spent 2.1% on Government and industry research in 2015. The Australia Innovation System Report 2016 provided that the total investment expenditure on innovation by Australian businesses in 2014–15 was between $26 billion and $30 billion, with innovation returns of between $52 billion and $60 billion. Therefore, increasing investment in innovation provides significant returns to the national economy.

The R&D Tax Incentive scheme has undergone a large scale review over the last 12 months with the release of the R&D Tax Incentive Review report in September 2016. Following consultation and submissions from the relevant stakeholders, the Government announced an intention to release its final response in early 2017.

Many industry stakeholders predicted that the Budget would coincide with the announcement of Government’s final recommendations for the R&D Tax Incentive Review and the measures would be included in the Budget.

The Budget 2017 announcement provided very few clues as to which direction the Government would go, making an announcement on the outcome of the review highly anticipated.

A shift in focus

Whilst last year’s catch cry was “jobs and growth”, the Budget 2017 indicates that the Government is keen to achieve growth and underlying savings through spending on large infrastructure projects in New South Wales, Victoria and Queensland and by the introduction of a new levy on banks and other savings measures.

Interestingly, there was little in the Budget for innovation and science and only a few items for small businesses. The Government announced a reduction to CSIRO funding of $13.6m over four years and a 2.5% efficiency dividend for universities over two years. ARC and NHMRC funding will fall behind inflation in future years, therefore reducing funding in real terms.

What’s in the Budget for innovation and small business?

A $100m to establish the Advanced Manufacturing Fund to boost innovation, skills and employment through a growth fund and centre, a Cooperative Research Centre, innovation labs.

A $7m increase in Business Research and Innovation Initiative.

$1.4 billion over four years for medical research.

For small businesses with a turnover up to $10 million, the Budget extended the instant tax write-off against new equipment worth up to $20,000. That $10 million threshold has been raised from the previous $2 million.

Businesses with a turnover of up to $50m will receive a company tax cut.

An annual temporary work visa levy of $1,200 or $1,800 per worker a year and one-off permanent skilled visa levy of $3,000 or $5,000. This is designed to promote local employment.